Friday, May 22, 2015

Sham charities have long been used to fleece
well-meaning donors. But over the last decade, efforts to tighten the way
charities are regulated or coordinate action between theInternal Revenue Serviceand state officials have largely
failed either because of regulatory indifference, political lobbying or lack of
political will.

Those holes were highlighted this week when
the Federal Trade Commission, all 50 states and the District of Columbia
accused James T. Reynolds and four charities that he helped run of cheating
donors of more than $187 million, bringing the charges decades after he first
hit regulators’ radar.

A report
in December by the Government
Accountability Office found that examinations of charities and tax-exempt
groups had steadily declined over the years and that review rates were lower
than for other filers.

The relative lack of oversight by the I.R.S.
has put the onus on other agencies and the states to monitor potential fraud at
charities. The F.T.C., for example, has previously brought actions against
groups claiming to be charities.

The I.R.S. has been little help in those
efforts. The regulation of charities at the state level is a hodgepodge. (New
York Times)

Thursday, May 21, 2015

Cancer Charities Fraud Charges After Years of Warnings …almost
$200 Million

by Gary Snyder

Finally the regulators are starting to watch. The Federal
Trade Commission and 58 law enforcement partners from every state and the
District of Columbia have charged
four sham cancer charities and their operators with bilking more than
$187 million from consumers- a large portion of the funds going to personal
use. The defendants told donors their money would help cancer patients,
including children and women suffering from breast cancer, but the overwhelming
majority of donations benefitted only the perpetrators, their families and
friends, and fundraisers.

This is one of the largest actions brought to date by
enforcers against charity fraud and it is the tip of the iceberg of a multitude
of cancer charity frauds that are seemingly not investigated by
regulators.

Named in the federal court complaint are Cancer Fund of America,
Inc. (CFA), Cancer Support Services Inc. (CSS), their president, James
Reynolds, Sr., and their chief financial officer and CSS’s former president,
Kyle Effler; Children’s Cancer Fund of America Inc. (CCFOA) and its president
and executive director, Rose Perkins; and The Breast Cancer Society Inc. (BCS)
and its executive director and former president, James Reynolds II.

According to the complaint, the defendants used
telemarketing calls, direct mail, websites, and materials distributed by the
Combined Federal Campaign, which raises money from federal employees for
non-profit organizations, to portray themselves as legitimate charities with
substantial programs that provided direct support to cancer patients in the
United States, such as providing patients with pain medication, transportation
to chemotherapy, and hospice care. In fact, the complaint alleges that these
claims were deceptive and that the charities “operated as personal fiefdoms
characterized by rampant nepotism, flagrant conflicts of interest, and
excessive insider compensation, with none of the financial and governance
controls that anybona fidecharity would have adopted.”

Also the complaint says the defendants used the
organizations for lucrative employment for family members and friends, and
spent consumer donations on cars, trips, luxury cruises, college tuition, gym
memberships, jet ski outings, sporting event and concert tickets, and dating
site memberships. They hired professional fundraisers who often received 85
percent or more of every donation.

Cancer Fund of America and Children’s Cancer Fund of America
both made the list of “America’s Worst Charities” compiled by the Tampa Bay
Times and Center for Investigative Reporting.

For almost a decade Nonprofit Imperative has warned its
readers about the problems associated with cancer charities, particularly breast cancer.

A glimpse of the bogus
reporting by cancer charities…

The Children’s Cancer Recovery Foundation, in Harrisburg, Pa., said it would lower its 2011
revenues by removing the value associated with the Gardasil HPV vaccine it
received from World Help and then donated to a charity in Ghana.

Greg Anderson, the group’s
founder, did not specify exactly how much the revenue would change, but the
vaccine was valued at $4.1-million, which accounted for 34 percent of the
group’s revenue.

Several years ago, the Christian relief charity World Help,
which was ranked No. 77 on The
Chronicle’s list of 400 charities that raise the most from private
sources, lowered its 2011 revenue last month from the $239-million it reported
to the Internal Revenue Service to just $17-million. It
had overstated its 2011 revenues by 1,400 percent; nearly all of its revenue
came from the value it estimated for the medications, food, and other supplies
that it received from other charities to deliver overseas.

An examination by The Chronicle revealed that those other charities—Catholic
Medical Mission Board, Cross International, and Direct Relief
International—said they had not provided the roughly $350-million worth of
medicines over three years to World Help, as listed in the Forest, Va.,
charity’s tax filings.

Breast Cancer Society (BCS) claims it raised $50 million in
contributions in tax filings but when pressed by Marie Claire Magazine the founder
said that it raised just $15 million in cash donations in 2009. The other $35
million represented his estimate of medications that the BCS accepted as gifts
or bought at a major discount but then listed on its books as having much
higher values. He says he gets the meds from other organizations, including the
Ontario-based Universal Aide Society, which saw its Canadian charitable status
revoked two years ago for malfeasance. In 2009, the leader collected a $223,276
salary.

Cancer charities
misrepresent…

Cancer Fund of America is a controversial group. Both the
Better Business Bureau and the nonprofit rating agency Charity Navigator have
vilified it for giving less than a penny of every dollar raised to cancer
patients. Charity Navigator once listed the Cancer Fund of America Support
Services, as one of "10 Non-Profits That Make Ebenezer Proud." In a
Georgia Governor's Office of Consumer Affairs document Cancer Fund was accused
of making false and misleading claims in its mail solicitations, allegations
that the Cancer Fund of America ultimately settled for $50,000

The United Cancer Council hired a fundraiser netting only $2
million out of the $28million
collected.

The Making Memories Breast Cancer Foundation raised
$1,159,654. Just under 12 percent, less than $137,000, went toward granting
wishes for terminally illbreast
cancer patients.

The American Cancer Society actually lost money on a program
(in 2010), because thetelemarketing
firm got to keep 100 percent of the $5.3 million in funds it raised, plus$113,006
in fees from the society, government filings showed. No apologies from the
agency.

They had more than 20,000 people who helped raise more than
$2 million byparticipating
in the national breast cancer organization’s, Y-Me, race and walk. Weeks later
the Chicago-based nonprofit, which operated
a nationwide hot line offering counseling to breast cancer patients, fired its staff,shut down its website address andclosed its doors. A Y-Me volunteer and founder of
the group’s signature fund-raising race, said “incompetence and mismanagement,”
especially under previous leadership, led to Y-Me’s downfall.

The National Breast Cancer Foundation was a family affair.
With collections of about $10 million, the founder takes home $200,000, her son
$180,000, her husband and another son all share in the largess at the expense
of those in need. It even endorses misleading jewelry. About 40%
of its revenues were not spent toward its mission.

The Coalition Against Breast Cancer offers virtually nothing
to patients after taking in millions. The Coalition is under investigation by
New York Attorney General EricSchneiderman. He called the charity
a sham.

Charity Navigator ranks The Breast Cancer Relief Foundation
and the John Wayne Cancer Institute with just one star, poorly performing
organizations. United Breast Cancer Foundation, Walker Cancer Research
Institute and the American Breast Cancer Foundation have zero (0) stars.

This still does not include some of the questionable
practices at the stalwart breast cancer charity, Susan G. Komen.

It has been estimated that hundreds of millions of dollars
are taken from those to which it was intended. Fewer than 50% of the
Charity Navigator breast cancer charities have rated high for their commitment
to Accountability and Transparency.

This
snapshot chart of Michigan attorney general's data is representative of the
magnitude of cancer charity fraud and mismanagement.

Charity

Gross
Receipts

% to Charity

The
Breast Cancer Charities of America, Inc.

$5,028,983

15.0%

The
Breast Cancer Relief Foundation

$2,429,883

15.0%

The
Breast Cancer Society, Inc.

$9,893,845

15.0%

Breast
Cancer Survivors Foundation, Inc.

$2,272,942

10.0%

American
Institute for Cancer Research

$837,249

21.4%

Cancer
Fund of America

$2,525,271

19.1%

Memorial
Sloan - KetteringCancer Center

$721,706

41.6%

Cancer
Fund of America, Inc. Funds

$132,327

$2,525,271

$336,626

$543,097

$14,046

14.0%

19.1%

13.0%

11.0%

17.4%

Cancer
Survivors' Fund

$1,093,608

10.0%

National
Children Leukemia Foundation Inc

$54,199

15.0%

The
National Children's Cancer Society, Inc.

$2,680,696

41.4%

National
Foundation for Cancer Research

$176,296

20.8%

United
Breast Cancer Foundation

$43,510

30.0%

United
Breast Cancer Research Society, Inc.

$490,235

10.0%

Woman
to Woman Breast Cancer Foundation, Inc.

$2,354,949

$1,534,151

$123,364

10.0%

10.0%

35.0%

Breast
Cancer Charities of America

$2,765,940

15%

Breast
Cancer Society

$9,893,845

15.0%

Cancer
Recovery Foundation of America

$4,085,181

15.1%

Children
with Hair Loss

$1,360,321

17.5%

Children's
Cancer Fund of America

$1,955,979

19.4%

Prevent
Cancer Foundation

$126,081

$0
0.0%

Mission
of Hope Cancer Fund

$441,179

20.0%

Childhood
Leukemia Foundation, Inc.

$403,687

13.0%

Observations on
the Latest Charges

“Cancer is a debilitating disease that impacts millions of
Americans and their families every year. The defendants’ egregious scheme
effectively deprived legitimate cancer charities and cancer patients of
much-needed funds and support,” said Jessica Rich, Director of the FTC’s Bureau
of Consumer Protection. “The defendants took in millions of dollars in
donations meant to help cancer patients, but spent it on themselves and their
fundraisers. I’m pleased that the FTC and our state partners are acting to
end this appalling scheme.”

Virginia Attorney General Mark Herring said, “The allegations of
fundraising for personal gain in the name of children with cancer and women
battling breast cancer are simply shameful. This is the first time the FTC, all
50 states, and the District of Columbia have filed a joint enforcement action
alleging deceptive solicitations by charities and I hope it serves as a strong
warning for anyone trying to exploit the kindness and generosity of others.”

South Carolina Secretary of State Mark Hammond said, “When
charities lie to donors, it is our duty to step in to protect them. At the
same time, however, this historic action should remind everyone to be vigilant
when giving to charity. This case is an unfortunate example of why I
always tell my constituents to give from the heart, but give smart.”

Exercise Due Diligence

Watch out before donating. Make sure that you
are confident that the charity that you donate to is honest.

·Go to GuideStar, if available; and review the
charity’s IRS 990 form; look at other watchdog websites such as Charity
Navigator.

·Go to the charity’s website and scrutinize the
annual report and try to see if there are conflicts of interest (such as family
members on the board);

·Check the financial statements both at
GuideStar and at website;

·Examine to see if programs are in sync with
organization’s mission;

·Ask if the agency has internal financial
controls in place to avoid fraud and misapplication of funds.

·Ensure
that the charity is effectively governed; it is transparent, accountable and
fiscally responsible

Friday, May 15, 2015

exposing the crisis in nonprofit
fraud leadership…a crisis of pervasive and monumental waste, fraud, abuse,
mismanagement, and malfeasance throughout the charitable sector which
costs taxpayers and contributors tens of billions of dollars annually;
and,

seeking reforms that will restore
the public’s lost confidence in the sector.

What’s
Included:

Skunk of the Month:

United Mid-Coast Charities; St. Jon’s Children’s Hospital

Charity Check Up:

West Harlem
Community Organization; National Relief Charities; Operation Tribute

A Thought or Two:

Perley
Fund

Nonprofit News-In Case You Missed It:

FASB; Increased Demand For
Charity Services; NFL; FEGS (again)…more

Political/Official Chicanery:

MI; MA; VT; NY; TX; TN; NC; CA; KY; PA;
OR…more

What Do You
Think?

“To do good, donors
must do their homework,”

"Fraud at
nonprofits is arguably much more common than most organization leaders would
suspect."A third party analysis of federal
filings that shows that more than 1,000 nonprofits said they had discovered a
"significant diversion" of assets between 2008 and 2012. And another
study concluded that nonprofits and religious organizations accounted for
one-sixth of all major embezzlements, placing the nonprofit sector second only
to financial services.(source)

…only 20% of leaders
said their organizations have a "facilitated fraud risk assessment process
(Nonprofit Pulse)

Skunk of the Month…

Skunk of the Month is the twice-monthly designation
made by Nonprofit Imperative, the
organization dedicated to eliminating waste, fraud, abuse and mismanagement in
nonprofits and government. The Skunk of the Month award is given to
charities and government officials who show blatant disregard for the interests
and trust of contributors and taxpayers. This month’s example is:

“They
came to do good and they did very well indeed (for themselves).”

Charity President Embezzles Upwards of $5 million

United Mid-Coast Charities (ME) and its former longtime
president have reached an agreement in which he will pay the group more than
$4.6 million in connection withhis alleged embezzlement of fundsfrom the organization.

United Mid-Coast Charities President Stephen Crane announced
in a news release that Russell “Rusty” Brace admitted to breach of duty, fraud
and conversion of money belonging to the charity after his theft of hundreds of
donation checks made payable to the charity.

The settlement is for $4,646,636, according to the news
release.

In order to partially satisfy the judgment, Bracehas agreed to sell propertiesthat he owns and turn over his
interests in the sale proceeds to the charity. He also has agreed to turn over
all the money that he holds in bank accounts as well as his interest in certain
items of personal property that will be sold.

Jay McCloskey, attorney for the charity, said “in order to
settle this case, the charity required Mr. Brace to agree to liquidate
virtually all his assets and turn over the proceeds to UMCC. At the end of the
day, I think the charity will recover a substantial portion of the money that
was stolen from it.”

No criminal charges have yet been filed against
Brace although Brace’s attorney Peter DeTroyhas said they
will be filed.

Hospital Director Finally Caught After Six Years

An attorney for a former children's hospital director in central
Illinois says she will plead guilty to at least one of several felony charges
in an embezzlement case.

Margaret Curtin is accused of stealing $700,000 from the nonprofit HSHS
St. John's Children's Hospital in Springfield. She has previously pleaded not
guilty.

Curtin was earning
more than $180,000 a year at her job. She's accused of stealing money from
2008-2014 and using it to pay off a credit card and for mortgage bills and home
improvements. (source)

Charity Check Up:

Politician Gains Control of Charity and
Hundreds of Thousands of Dollars

Rev. Andre Soleil, a former aide to Mayor Rudy Giuliani and Gov.
George Pataki, joined the West Harlem Community Organization board in 2011 and
stuffed his pockets with organization funds meant to house and educate the
poor, a new lawsuit charges.

The Brooklyn attorney and political operative quickly gained control of
the nonprofit’s seven apartment buildings, which were deeded to the group by
the city in the 1990s for affordable housing, according to the lawsuit, which
was filed by the organization.Soleil,
47, sold one of the buildings, 218 W. 116th St., without required permission
from the state attorney general, to a Miami-based company for $1.4 million in
December 2013, the suit says.

“Where the
majority of the proceeds from this unlawful sale have to personally enriched himself,”
the nonprofit’s lawyer, William Fried, says in the court papers. Soleil has refused to
account for all the proceeds, though the suit alleges he put $489,000 in his
law firm’s escrow account “with the intent to convert those funds for his own
use.” Court papers allege another $70,000 went to pay consultant Joednee Copeland’s
salary, even though the nonprofit’s board refused to authorize the payment. (source)

Six hundred deprived of schooling by $4 Million Embezzlement

A former charity
president who stole $4 million from the nonprofit, National Relief Charities
(OR), depriving 650 desperately poor Native American students of a chance for
college scholarships, was sentenced to a little more than three years in
prison.

Another Vet Charity Raided---$750,000

The award-winning founder of Operation Tribute was
under investigation for stealing $750,000 from the nonprofit. Federal
investigation indicates that he used $24,000 of donated funds for his child’s
tuition, more than $230,000 in cash,

A Thought or Two:

Board On The Hook For Governance Failures

A New York City nonprofit used a choir as part of a
strategy to enrich its president, state Attorney General Eric Schneiderman's
office said. "The breakdown in governance at the Perley Fund was shocking,
bringing a longtime charity serving New York's underprivileged children to the
brink of financial ruin," Schneiderman said. The more than 50-year-old
Victor E. Perley Fund's problems started after trustee Richard Basini took over
as president in 2009, the AG said. Basini helped secure the fund's purchase of
a $1.1 million house in the Hamptons as a retreat for the choir — which he then
used as a private residence, they said. An investment banker he recruited to
manage the organization's funds also steered money into companies Basini had
relationships with, the AG said. Basini committed suicide in 2013.

The attorney general
went after the directors. Board members of nonprofits are supposed to
prevent—or at least detect—looting of their organizations. In this case, they
did not. The $1 million
settlement will come from Philadelphia Indemnity Insurance Co., which provided
coverage to the trustees.

1.The U.S. Court of
Appeals for the Third Circuit recently upheld a $2.25 million jury verdict
against the directors of a nonprofit nursing home, holding them personally
liable for breach of their duty of care. Their sin? Failing to remove the
nursing home’s administrator and CFO “once the results of their mismanagement
became apparent.” While the court overturned a punitive damages verdict against
five directors (the jury had found nine other directors liable for compensatory
damages but not punitive damages), it upheld punitive damage awards of $1
million against the CFO and $750,000 against the Administrator. The decision,
while unusual, illustrates that serving on a nonprofit board is not risk-free
even if as in this case, the directors do not breach their duty of loyalty or
engage in any self-dealing. [In
re Lemington Home for the Aged, 777 F.3d 620 (3d Cir. 2015). h] (source)

3.The Financial Accounting Standards Board has
issued aproposed accounting
standards updateto
improve the information provided in not-for-profit financial statements and
notes to financial statements that could have major implications for nonprofit
organizations. “The proposed ASU
contains recommended enhancements to the fundamental reporting model for
not-for-profit organizations—a model that has existed for more than 20 years,”
said FASB member Lawrence W. Smith in a statement. “We believe that these
changes will refresh the model in ways that will make not-for-profit financial
statements even more useful to donors, lenders, and other users.”

4.According to the2015 State
of the Nonprofit Sector Survey, 76 percent of the fifty-four hundred
nonprofits surveyed reported an increase in demand for their services, while 52
percent said they couldn't meet the demand — the third consecutive year in
which that figure was more than 50 percent. Of those respondents unable to meet
demand for their services, 71 percent said that client needs go unmet when they
are unable to provide services.

5.The National Football League’s central office will
become a taxable entity, ending its tax-exempt status in a move with minimal
financial effect and significant symbolic value.The
league’s decision pre-empts a move to revoke the tax break that had been led by
former Senator Tom Coburn of Oklahoma. For the NFL, the costs of losing
the tax break are minimal, an estimated $109 million over the next decade.
There are benefits for the league, too, including the end of federal disclosure
requirements that put Commissioner Roger Goodell’s salary and some other league
information in the public domain. The commissioner Roger Goodell’s
pay reached$44 million in 2012. The league will now be allowed to avoid many of
those disclosures,

6.The NFL’s move mirrors
one made by Major League Baseball in 2007. The National Basketball Association
never was tax exempt. The National Hockey League is now the only major
professional sports league in North America with the status.

7.Gail Magaliff, who was
the CEO when the FEGS Health and Human Services, one of New York City’s largest
social service agencies ran aground, is asking for$1.2 million in deferred compensation. Magaliff
earned a total of $638,880 in base salary and additional compensation in 2012,
other employees earning far less also have claims for unpaid severance and
vacation time, and there will not be enough to pay all such claims off.

8.Update: Donors are starting to
give again to the Central Asia Institute after contributions plummeted over
mismanagement allegations against the charity founded by "Three Cups of
Tea" author Greg Mortenson, its executive director said. More than 1,270
donors who stopped giving money to the Bozeman-based organization over the past
two years have contributed this year, and total donations are about $100,000
higher than the $1.7 million at this time in 2014, according to Central Asia
Institute officials. The charity builds schools and promotes education in
Pakistan, Afghanistan and Tajikistan.

We flagged these few
examples of

1.Sons of Malta (MI)/EZ Memorial Ride unknown

2.North
Berrien Senior Center (MI) $317,000

3.North East Collegiate
Lacrosse League (MA) $6000

4.Caledonia Central Supervisory Union
Schools (VT) $3000

5.Monroe County Child
Advocacy Center (MI) $30,000

6.Dexter Community Schools
(MI) $100,000

7.Mighty Oaks Children's
Therapy Center (NY) $44,000

8.Covenant Presbyterian
Church (TX) <$100,000

9.Saint George Greek
Orthodox Church (TN) $400,000

10.Jamestown Elementary School’s PTA (NC) $5000++

11.Live Oak Schools PTA(CA) $12,850

12.Toys for Tots (KY) $40,000

13.Hunting Park Neighborhood Advisory Committee (PA)
$85,000

14.Reedsport School District (OR) $25,000

15.Eastminster Child Development Center (MI) $20,000

16.Irvine Regional Hospital/ Hoag Hospital Foundation (CA) $220,000

17.Boys & Girls Clubs of Sonoma Valley (CA) $8000

18.Tet Parade (CA) $118,000

19.Muhlenberg Township Athletic Association (PA)
$60,000

20.Northwood High School (NC) $81,000

Political/public official chicanery(just a few):

1.The
former executive director of a Chicago-based charity, the Organization of New
City, pleaded not guilty to using thousands of dollars in donations for
personal expenses. He is charged with theft of more than $100,000, and misuse
of charitable trust funds, according to court records and Attorney General Lisa
Madigan’s office. The agency helps low-income homeowners pay their mortgages on
time to avoid foreclosure, Madigan’s office said.

2.A former Clay Township(MI) clerk pleaded guilty to a 15-year
felony. The case of former
Titusville Area Leisure Services director Michael Rice, who is charged with
stealing more than $4,500 in city pool earnings during his brief tenure in
2013, will proceed to Crawford County Court .

3.New York State’s political power player Carl
Heastie’s mother plead guilty in 1998 for embezzling money from a nonprofit
organization she was employed by, according to the New York Times. Prosecutors say she
used the stolen money to purchase their family home in 1995 at $165,000. To avoid jail-time she agreed to sell
the home, co-owned by her son, and forfeit all revenues to her former employer.
However, three weeks after being sentence Mrs. Heastie passed away at the age
of 60. Going against the judge’s stipulations, Mr. Heastie retained the
three-story Bronx rowhouse and didn’t sell it until six years later, using the
profit of over $200,000 to finance his current home. Duncan Levin, who reviewed the case for The
New York Times, stated Mr. Heastie was “sitting on stolen money” that
prosecutors should have recovered during the case or following his mother’s
death.

4.A
former Michigan State University employee charged with embezzling more than
$100,000 from the College of Osteopathic Medicine could stand trial next month.
She used her position at the
university to make unauthorized personal purchases, including gift cards, iPads,
Apple computers and computer accessories, in addition to cash, according to
court records.

6.A former Clay
Township(MI) clerk pleaded guilty to a
15-year felony. He will pay the township a total of $131,225 in restitution.

7.Former Berrien County
Commissioner Robert Wooley was sentenced to a minimum of nearly three years in
prison after pleading guilty to embezzling more than $300,000 from the North
Berrien Senior Center, where he was the director.

8.The former Elm Creek
city clerk (NE) is charged in Buffalo County District Court with felony theft
for allegedly embezzling $10,518 from the village.

Nonprofit
Imperativegathers
its information principally from public documents...some of which are directly
quoted. Virtually all cited are in some phase of criminal proceedings; some
have not been charged, however there is money missing. On rare occasions, there
may be duplicates.

Gary
Snyder is the author of Silence: The Impending Threat to the Charitable
Sector (Xlibris, June, 2011) and Nonprofits: On the Brink
(iUniverse, February, 2006) and articles in numerous publications. The book can
be bought at amazon.com,barnesandnoble.com, Barnes and Noble (store)

About Me

Gary Snyder is the author, most recently, of the groundbreaking expose on the charitable sector, Silence: The Impending Threat to the Charitable Sector as well as the often-cited guide on best practices and key concepts, Nonprofits: On
the Brink.

He is the publisher of a
twice-monthly newsletter, Nonprofit Imperative that gives an update on the current status of the
charitable sector.

Snyder is often quoted and frequent contributor to the blog of the National
Committee for Responsive Philanthropy. Snyder twiceauthored the Governance Chapter of the Michigan
Nonprofit Management Manual (4th and 5th editions).

He is a speaker on ethics,
financial and governance matters of the sector. For almost a decade, Snyder is frequently
consulted by Congress and has been quoted in print, broadcast and online media
outlets.